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How I made $500k with machine learning and high frequency trading

jspauld.com

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Re: How I made $500k with machine learning and high frequency trading

#201

Post by solutionyogi »

jspaulding wrote: post #143
debacle wrote: post #133

Earlier quoted context omitted.

I guess the real question is: what was your alpha in that timeframe?

I'm probably showing my ignorance here but what do you mean by alpha? And how is it quantified?

Alpha is how much excess return you had over the market (or risk free return(

E.g. if you made 10% when overall market was up 15% for the year, you have negative alpha. [As someone could have bought index and held it through year to generate better return]

If you made 20% when market was up 10%, you have positive alpha.

That is why everyone in the investment community is 'seeking alpha'.

Re: How I made $500k with machine learning and high frequency trading

#202

Post by jhales »

HockeyPlayer wrote: post #195
jspaulding wrote: post #194

Earlier quoted context omitted.

Thank you. I'm looking back through my code and there are really a lot of indicators. It would get pretty technical to explain them. They are all explainable it's just that each one corresponds to slightly different market conditions and I just didn't want to get into it.

Fair enough. Most people considering trying this probably have a few ideas for indicators. But for anyone coming to HFT from a coding background instead of a trading background, an explanation of one of your indicators would have been fascinating.

Yes, I would find this very interesting. Doesn't matter if the indicator is now defunct.

Re: How I made $500k with machine learning and high frequency trading

#203

Post by kolbe »

jspaulding wrote: post #81
yajoe wrote: post #43

Earlier quoted context omitted.

This. I love crazy projects and Show HN's until the cows come home, but this one is dangerous that I must repeat the warning to others. I cannot emphasize how important it is to understand that people who trade using price action ( http://en.wikipedia.org/wiki/Price_action_trading ) are just speculating based on where they expect the price to move. It's no different than people who play Texas Hold'em online and specu…

Hey, I didn't actually intend this to be a course. I do not make any money in the market right now so am certainly not qualified to teach a course on it. And of course, if I was making money in the market I wouldn't have posted this at all. So please everyone remember that. These comments have made me realize it's probably for the best if I do not post the source code. Basically you are competing against armies of PH…

FWIW, I couldn't see your pnl chart.

I develop algorithmic strategies for a living, and my first reaction to reading your post was skepticism. I'm skeptical for two reasons. (1) because your methods are so unconventional in an industry where convention rules, and (2) because of the time frame of your success, which happened to be one of the more impressive market recoveries in history.

I can't tell you how many people I've worked with who fail to isolate the source of their pnl (myself included at times). This is key. It's important to benchmark your strategy against other stupid ones that you know don't have edge. When someone shows me strategies that worked in 2009 and 2010, I immediately make them prove their strategy was not the equivalent of being long equities.

Doing this will truly help isolate whether or not luck is involved. When you say that the number and size of your trades justifies the strategy's validity, that's just wrong. You could do 1000 trades in a day: buy 10 RUT futures at the beginning of the day, sell 10 at the end, and just scratch 1 lots for the other 998 trades. In a bull market like 09-10, that would have made 400k, and would have nothing to do with Machine Learning or its applications to HFT.

I make all traders benchmark their work against a series of other strategies that I know have no edge, even though they, at times, can appear to have edge.

Now, I'm not saying you didn't have legitimate edge, but you do your readers a disservice by omitting relevant stats and discussions like that.

Re: How I made $500k with machine learning and high frequency trading

#205

Post by owyn »

grumps wrote: post #181
owyn wrote: post #159

Earlier quoted context omitted.

Nope, there is absolutely no way to do this with python or ruby. :) Seriously though, there are some existing frameworks and products that you could check out. I haven't used this myself, it's just in my bookmarks: http://www.rapidquant.com/features A C++ library with python bindings: http://quantlib.org/index.shtml And a low level library for data analysis: http://pandas.pydata.org

If you use their library/SDK/Framework.... how do you actually trade, do you still need a brokerage? Sorry a bit new to this field.

Yep, almost any of them have an API these days. Your software would make the list of trades which is uploaded and executed...

Oh, I forgot about another backtesting framework for python. It has a built in IDE as well.

http://www.quantopian.com

Re: How I made $500k with machine learning and high frequency trading

#206

Post by dmmalam »

Being pedantic, 4000 trades a day isn't HFT. This is stil algo trading, of which HFT is a subset.

I consider HFT to be any strategy where speed itself is the what gives the edge. Colocation is usually a prerequisite, though not sufficient. It's a shame HFT gets all the attention, when it's really a tiny portion of trading activity. Algo-trading in general is 70%+ of market activity in the US.

Also limiting trades isn't really adequate risk management. The tech exists to very accurately model your exposures. This is something I see underdeveloped a lot, and what separates the top trading firms from the rest.

Still I commend you creating a model, working out how to test and execute it automatically and actually trading your own money.

I really think more hackers should be actively managing their money, (in general, not like in the article). We have these amazing liquid markets, all time low spreads/commissions, products like ETFs/derivatives to accurately and cheaply execute a given strategy, and a huge increase in tech to model risk, but personal personal investing is the same as the 60s.

Re: How I made $500k with machine learning and high frequency trading

#207

Post by highfreq »

jspaulding wrote: post #121
bjourne wrote: post #108

Earlier quoted context omitted.

Guess you are familiar with http://en.wikipedia.org/wiki/Survivorship_bias ? In 2009, there were probably tonnes of people trying to exploit the market using similar low-tech methods as you. Even if all of them were at best break-even, some of them likely made a lot of money on their unprofitable algorithms by pure chance thanks to the size of the cohort. Those few blogged about it and those who lost money didn't. :)…

It's a great point and seems like a very smart thing to keep in mind. I think in my case, based on the statistics involved, the odds that my success was luck just seems astronomically small. But, guess I'm biased in my own way :)

By luck and skill you found a temporary systematic bias that other players missed. It was even luckier that you found it without a lot of upfront losses. But you could have made many attempts and not found any bias and overall lost money and gave up. If lots of people are losing small sums to find these biases, then it may be that the expected return of trying to find biases is zero or negative.

At best HFT is a near zero sum game. It isn't creating value for customers. It isn't making the world a better place.

It is an unfortunate flaw of our economic system that so many smart people put so much effort into playing zero sum games with each other.

Re: How I made $500k with machine learning and high frequency trading

#209

Post by jspaulding »

kolbe wrote: post #203
jspaulding wrote: post #81

Earlier quoted context omitted.

Hey, I didn't actually intend this to be a course. I do not make any money in the market right now so am certainly not qualified to teach a course on it. And of course, if I was making money in the market I wouldn't have posted this at all. So please everyone remember that. These comments have made me realize it's probably for the best if I do not post the source code. Basically you are competing against armies of PH…

FWIW, I couldn't see your pnl chart. I develop algorithmic strategies for a living, and my first reaction to reading your post was skepticism. I'm skeptical for two reasons. (1) because your methods are so unconventional in an industry where convention rules, and (2) because of the time frame of your success, which happened to be one of the more impressive market recoveries in history. I can't tell you how many peopl…

Thank you. You are right - I should clarify things by saying my program had no directional bias. It was a 50/50 split of longs/shorts. Are there other stats I'm missing?

Re: How I made $500k with machine learning and high frequency trading

#210

Post by heyitsnick »

gweinberg wrote: post #176
beagle3 wrote: post #48

Earlier quoted context omitted.

It is only gambling in the sense that any business is gambling: Your customers might stop coming tomorrow because the fad wore off, or a competitor provides a better/cheaper/hipper alternative. (And indeed, living is gambling. It's all just a matter of the risk/reward portfolie). But jspauld has apparently made $2/trade after fees on 250,000 trading, with a very small standard deviation (I would guess less than $2/tr…

No. Every business has a risk element, but what makes this gambling is that there is no good or service being produced. It's a game of trying to outguess the other players, with one trader's gain being another trader's loss (relative to market returns). Because there's a commission on trades, and because you pay taxes on net gains but your minimum tax is zero, high frequency trading by its very nature must a loss for…

As a professional poker player, analyst and journalist, and being fairly well-read on classifications of gambling vs skill game in different jurisdictions, I have not before come across a definition of gambling that was rooted in the idea that "no good or service is being produced."
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